Ian Cowie was named Consumer Affairs Journalist of the Year in the
London Press Club Awards 2012. He has been head of personal finance at
Telegraph Media Group since 2008, having been personal finance editor
since 1989. He joined the paper in 1986. He is @iancowie on Twitter.

Spending review will cost 1.8m pensioners £330m a year

One in six pensioners faces a cut in retirement income (Photo: IAN JONES)

About 1.8m pensioner households living on less than a third of national average earnings will each lose an average of more than £180 a year as a result of complex changes announced in the Comprehensive Spending Review. George Bull, a partner at accountants Baker Tilly, commented: “It is extremely regretable that some of the most vulnerable people in society are going to suffer to the extent of £330m a year in total, according to the Treasury’s own figures.

“People who have scrimped and saved to set a little aside for their old age are among the most deserving – not the least deserving – when it comes to help from the State. Many will be disappointed when they discover what is happening.”

Tom McPhail, pensions expert at Hargreaves Lansdown, said: “The Chancellor’s decision to freeze the maximum savings element of Pension Credit will cause a significant cut in retirement income for about one in six pensioners.”

At present, people aged over 60 are entitled to claim Pension Credit to ensure their total weekly income is at least £132.60, including the Basic State Pension of up to £97.65. Where total income exceeds £132.60 a week – or about £6,895 a year – Pension Credit is lost or clawed back at a rate of 40p for every £1 above the threshold.

To reduce the extent to which this means test punishes thrift, a savings element – worth up to £20.52 a week for a single person and up to £27.09 for couples – was introduced to Pensions Credit. It is the maximum value of the savings element of Pension Credit which the Chancellor now proposes to freeze for four years from next April. According to Treasury documents, this will save the public purse £330m at the expense of 1.8m households.

Mr McPhail said: “Bear in mind that most pensioners experience a higher rate of inflation than the Consumer Prices Index (CPI) or even the Retail Prices Index (RPI) because they tend to spend a higher proportion of their income on food and fuel, so you can see that pensioners with modest savings will feel the impact of this freeze.

“With level annuity yields around 6.4 per cent for a man aged 65, the people most affected by freezing the maximum value of the savings element of Pension Credit will have savings of less than £20,000 or a private income of less than £1,200 a year.

“There is not much those in or near retirement can do about it. But the message for younger people seems to be that there are two options. Either don’t bother to save and throw yourself on the mercy of the State, hoping it will look after you, or save as hard as possible and don’t rely on the Government at all.”